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Kerr-McGee claims should offset award in Tronox case − Anadarko

14 January 2014 17:25
Source:ICIS News

HOUSTON (ICIS)--Kerr-McGee's claims against Tronox during the pigment producer's bankruptcy proceedings should offset most of the potential $14bn award made against the company, according to Anadarko, the owner of the energy-producing subsidiary.

Much of that award could go to the Environmental Protection Agency (EPA), which had no immediate response on Tuesday regarding Kerr-McGee's estimate of the ultimate award.

The potential award is the result of litigation, which, in turn, is connected to the spin-off of Tronox, Kerr-McGee's acquisition by Anadarko and the subsequent bankruptcy of Tronox.

Tronox was the chemical division of Kerr-McGee before its spin-off in 2006.

Before its spin-off, Tronox alleged that Kerr-McGee transferred valuable oil-and-gas assets out of Tronox while burdening it with massive environmental liabilities.

Tronox alleged that the strategy was part of a scheme to make Kerr-McGee an attractive acquisition target. Within months of the Tronox spin-off, Anadarko acquired Kerr-McGee for $18bn.

In January 2009, Tronox filed for bankruptcy protection under Chapter 11. It sued Kerr-McGee in May 2009.

The EPA, other environmental regulators and tort claimants have since taken over the litigation. They were represented by trusts.

Late in December, a judge wrote an opinion in favour of the trusts. Before a judgement is issued, the size of the award must be determined.

According to Anadarko, one method of calculating the damages would reward the trusts more than $14bn. The other methods would award the trusts much smaller amounts.

The extent of the reduction would depend on how the court calculates the size of Kerr-McGee's claims in the Tronox bankruptcy, Anadarko said.

Kerr-McGee was among several creditors that filed claims in Tronox's bankruptcy.

In one scenario, Kerr-McGee's claims would reduce the size of the damages to $850m, Anadarko said. Another would lower the damages to $1.76bn.

In a statement, Anadarko CEO Al Walker said, "We believe the court's approach in its provisional findings, as applied, leads to incorrect conclusions for the calculation of damages and is contrary to the court's stated view that the purpose of the applicable law is 'remedial rather than punitive.'"

Meanwhile, the company has maintained its disagreement to the court's December opinion and reserves its right to appeal, Walker said.

Tronox has since emerged from bankruptcy protection, and the company's stock is traded on the New York Stock Exchange (NYSE).

Tronox itself will not directly benefit from the reward, since the litigation was taken over by the trusts.

Tronox, however, will stand to benefit through tax deductions that are connected to the trusts, the company said in a statement. The size of these deductions will be determined by how much money the trusts spend to clean up the polluted sites and to compensate people who suffered damages from these sites.

Tronox estimates that these tax benefits could total hundreds of millions of dollars annually and that these benefits could last for decades.